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George Soros Sees Another 2008 in China

George Soros, who has a net worth of about $27.3 billion, gained notoriety in 1992 when he correctly predicted that the United Kingdom would be forced to devalue the pound. It wasn’t just the prediction that made him famous, but the $1 billion he netted from acting on that prediction that caught the world’s attention. So, when George Soros makes a financial prediction or sees a global market pattern on marketwatch.com, suffice it to say, the world pays heed. That being said, Soros has made some pretty alarming predictions about what he has noticed as China switches its economy base from a manufacturing and investment structure to a consumption and services-based one.

“China is struggling to find a new growth model and its currency devaluation is transferring problems to the rest of the world, Soros said in Colombo.” What problems are those? By the first week in January of the current year, China’s equity losses had shut down its stock market for an entire day and the value of equities in the rest of the world had already dropped by $2.5 trillion. Soros says that these patterns are reminiscent of 2008 where the world saw a crippling recession that brought almost every economy to its knees in one way or another. Soros says that China’s adjustment problems amount to a crisis, it, of course, being the second largest economy in the world.

All the volatility radars are up as well, adding weight to the George Soros predictions. The VIX, The Chicago Board Options Exchange Volatility Index, also know as the ‘fear gauge’ is up by 13 percent over last year and its Japanese counterpart, the Nikkei Stock Average Volatility Index had jumped 43 percent by the end of January. Even a Merrill Lynch index of Treasury bonds price predictions rose by 5.3 percent.

In a reach for stability on forbes.com, the People’s Bank of China has brought interest rates down to record lows, authorities pump hundreds of billions of dollars into the market, and the Communist Party vows to get the yuan’s convertibility up by 2020. What should investors be doing in the ensuing four years between now and then? According to Soros, returning to worthy interest rates will be a challenge for China and he suggests extreme caution in global investments.